It is a great time to buy, but don’t overspend

Homebuyers should never jump into the market with their eyes shut, even at times like these, when the combination of low interest rates and still-low property prices is creating some wonderful purchase opportunities.

Berry Everitt, CEO of the Chas Everitt International property group, says potential buyers – and especially those entering the market for the first time – should never lose sight of their own personal and financial circumstances, or of the fact that interest rates can go up just as easily and quickly as they come down.

“The low interest rates at the moment obviously do make it much easier to qualify for a home loan, to afford the monthly bond repayments and municipal charges, and to have money left over to keep the home in good condition.

“And as I’ve said elsewhere recently, prices in many areas are still below their pre-recession levels, which at the moment means that the sooner you buy, the better deal you are likely to get for your money.”

But it is extremely important, he says, for homebuyers not to purchase more home than they actually need just because it is “going cheap”, and vital that they leave themselves lots of leeway when working out what monthly bond instalment they can afford.

“Indeed, I think that buyers should always squeeze the price and not their budgets. What I mean by that is that rather than first finding a home to buy and then stretching the household budget to the limit to get the loan and afford the repayments every month, potential buyers should first take a hard look at what instalment they would feel comfortable paying, subtract some of that amount to allow for contingencies like the interest rate going up, and only then go shopping for the best house available in their price range.”

Everitt says good rule of thumb is that a new home should not cost more than 2,5 to three times the annual income of the family.

“So if your combined annual salary is R300 000, you should be looking at homes priced at R900 000 at most in order to keep up comfortably with the bond repayments once you have paid a deposit of at least 10%.”

Potential buyers, he says, should also bear in mind that the banks do not look at home loan debt in isolation. “Since the introduction of the National Credit Act, they have also been obliged to look at your overall financial situation - including debts such as car and credit card repayments as well as your regular monthly expenses such as school fees, insurance, food and transport costs and water and electricity accounts – before granting a home loan.

“And before you rush out to buy a home, I suggest this is what you should do, too, to ensure that all your debt commitments together will be manageable, even if interest rates rise. For peace of mind in this case, I would suggest that your total monthly debt repayments, including your bond instalment, should not exceed 40 percent of your income – which means they should add up to R10 000/ month or less if your combined monthly income is R25 000.”

Article by: www.chaseveritt.co.za